Goldman Sachs has cut its U.S. growth forecast again, citing Democratic Sen. Joe Manchin’s assertion that he won’t back President Joe Biden’s key $2 trillion spending bill.
“BBB [Build Back Better] enactment had already looked like a close call and in light of Manchin’s comments we are adjusting our forecast to remove the assumption that BBB will become law,” said a team led by chief U.S. economist Jan Hatzius.
Manchin told “Fox News Sunday” that after five-and-half months of talks within his own party, he couldn’t “vote to continue with this piece of legislation. I just can’t. I’ve tried everything humanly possible. I can’t get there.” His vote is crucial in a 50-50 split Senate.
“We had already expected a negative fiscal impulse for 2022 as a result of the fading support from COVID-relief legislation enacted in 2020 and 2021, and without BBB enactment, this fiscal impulse will become somewhat more negative than we had expected,” said Hatzius and the team.
Specifically, they said the expiration of the child tax credit and the lack of the other new spending that had been expected are behind the hits to its growth forecast, which was cut to 2% from 3% for the first quarter of 2022, to 3% from 3.5% for the second, and to 2.75% from 3% in the third quarter.
“While BBB in its current form looks unlikely, there is still a good chance that Congress enacts a much smaller set of fiscal proposals dealing with manufacturing incentives and supply-chain issues,” said the economists. “There is also still a chance that Congress retroactively extends the expanded child tax credit, with some modifications, though we think the odds of this occurring are less than even.”
Manchin’s rejection of the bill was helping drive losses for perceived riskier assets, with global stocks falling along side oil prices. Political concerns piled on top of worries over increasing COVID infections due to the omicron coronavirus variant.
Goldman economists had already cut their U.S. growth forecasts for 2021 and 2022 in October due to fears over a slow consumer spending recovery.